Oklahoma Supreme Court Permits Third Party To Sue State Farm for Bad Faith


Oklahoma City, June 22 – The Supreme Court of Oklahoma has reversed summary judgment for State Farm Insurance in a bad faith claim brought by a third party to an insurance contract¬† who bought the property in question from State Farm’s insured.

In Hensley v. State Farm Insurance, the Court ruled:

We hold buyer’s action in this case for breach of the implied-in-law duty of good faith by an insurer is based upon his status as an insured or third party beneficiary; and buyer’s equitable title to property arising from a contract for deed is insufficient by itself to confer upon him the status of an insured. We hold buyer presented facts on the issue whether he was an intended third party beneficiary, and these facts and their inferences were disputed by insurer. Whether buyer is a third party beneficiary and an insured under the policy based upon disputed facts and inferences is a matter for the trier of fact and summary judgment for insurer must be reversed.

The Court summarized the relationships of the parties as follows:

Kenneth Hensley and his wife owned real estate containing a mobile home in which they resided. They moved and sold the property to Douglas in May 2000 using a contract for deed. The contract for deed required Douglas to keep the premises insured, and the monthly payments made by Douglas to the Hensleys were required to include the premiums. The contract for deed specified any increase in insurance premiums during the term of indebtedness would be matched with a corresponding increase in monthly payments paid to the Hensleys. The Hensleys had an insurance policy with State Farm Fire & Casualty Company on the property and the Hensleys continued to make the premium payments and the policy continued to be renewed.

In 2008, Douglas reported a vandalism claim.¬† After the parties could not agree as to whether State Farm’s payment of the claim was adequate, both Douglas and Hensley sued State farm in state court.¬† State Farm sought and was granted summary judgment, in part on grounds that Douglas was not an insured, was a “stranger” to the insuring agreement, and therefore lacked standing to bring bad faith claims against State Farm.

In reversing the trial court’s ruling in State Farm’s favor, the Oklahoma Supreme Court ruled that while Douglas’ equitable title to the property insured by State Farm did not create a bad faith right of action, Douglas should be entitled on remand to demonstrate he and is wife were intended third party beneficiaries of the insuring agreement between State farm and the Hensleys:

Douglas presented facts that State Farm construed the policy to include Douglas as an insured or beneficiary. Whether Douglas is a third party beneficiary and an insured under the policy is based upon an adjudication of disputed material facts. We are required to take all inferences in favor of the party opposing summary judgment, and when it appears that there are disputed material facts a summary judgment must be reversed.

Hensley v. State Farm Fire & Cas. Co., 2017 OK 57, 2017 Okla. LEXIS 59 (Okla. June 20, 2017)

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